Oversold rallies notwithstanding, the Debt-Junkie Market just stumbled into the pool and was barely saved from drowning. The stock market party isn't over for strictly technical reasons, though the technical damage is severe.

The party's over for a much deeper reason: faith that the Fed can fix the economy has faded, and participants no longer believe Wall Street's self-serving hype about the recovery and rising markets. Oh sure, people go through the motions of expressing faith in the market, in corporate profits rising forever, in official pronouncements of the Fed's omnipotence, and in whatever snapback rally is in play at the moment, but it's all for show; nobody really believes any of it, they just don't want to be the odd man out by confessing their loss of faith in the false idols. America Is Just Going Through the Motions(November 19, 2010).

The financial Status Quo has an unsolvable problem: reality isn't swayed by propaganda. Does anyone really believe another couple years of low interest rates and a snapback rally or two will fix what's broken in the U.S. and global economies?

Hasn't it been made abundantly clear that super-low interest rates only fuel speculation and malinvestment?

This loss of faith is not a temporary phenomenon but rather a sea change in the zeitgeist, somewhat akin to the loss of trust in a partner caught cheating: you can never go back to what existed before, even though you go through the motions of a return to normalcy.

I have covered this systemic loss of faith in the Status Quo many times--a process of delegitimization that is reflected in declining participation, withdrawal of funds, and increased skepticism of official pronouncements and statistical "proof" that the Status Quo is healthy and sustainable.

What we're seeing is a gradual, generational abandonment of the stock market as a trustworthy place to secure wealth. The closest analogy is the 1970s, when participants' euphoric belief in the permanence of the go-go stock market of the late 1960s was slowly destroyed, along with their wealth.

There are plentiful signs that the quasi-religious faith in stocks has reached an apex and begun a long, slow slide. For example, the Q ratio leaped to previously unimaginable heights, and is still far above its previous lows registered when people had lost faith in the market and its institutional cheerleaders (The Fed, Wall Street, etc.)

The value of the stock market relative to the GDP (a proxy for the real economy) has been at historically high levels for decades:

Here's what markets look like once institutional credibility has been lost: note the long decline in the Dow through the 1930s and the Nikkei market in the 90s. Yes, there were rallies lasting several years, but the markets never recovered the wealth that had been wiped out in their declines.

Faith in the Fed and Wall Street has eroded because their bailouts failed to repair the real economy or household balance sheets. If all the Federal/Fed backstops are included, the total exceeds $23 trillion, but let's see where the most visible $10 trillion ended up:

Over on the fiscal side, the Federal government has borrowed and blown some $6 trillion over the past four years in debt-enabled "stimulus." And how much did that torrent of debt accomplish? Looks like it yielded a negative return: the experiment was a failure.

Meanwhile, back in the real economy, labor's share of the national income has dropped:

And so has household income.

Rather than question the loss of faith in the Fed's magic wand and Wall Street's perpetual cheerleading, we might ask why it's taken so long for people to realize the Fed is a clueless cabal of cargo-cultists in servitude to the rigged game known as Wall Street, and the only solution is to opt out of playing the market.

The Debt-Junkie Market has been pulled from pool, dripping wet and mumbling, but the onlookers' frothy party conversations have dwindled to whispers. Yes, the Market has been "saved" once again, and the Fed will undoubtedly continue announcing new Methadone treatments that it promises will work wonders.

But anyone looking at the haggard, bent wastrel standing on the pool deck, arms scarred with tracks from previous Fed "treatments," is forgiven for excusing themselves: the party's over, even if the hosts are loudly declaring it has barely begun.

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